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University Honors Theses University Honors College

8-2022

A New Studio Era: How Net>ix is Becoming a Threat A New Studio Era: How Net>ix is Becoming a Threat

to the Film Industry to the Film Industry

Al Kasper

Portland State University

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A New Studio Era:

How Netflix is Becoming a Threat to the Film Industry

By

Al Kasper

An undergraduate honors thesis submitted in partial fulfillment of the

Dr. Nancy Breaux

Portland State University

Technology has come a long way since the invention of the moving picture. The film

industry has been a consistent source of entertainment since the early twentieth century and has

evolved alongside public interest and technology. From the beginning, cinema was a large and

profitable industry that grew rapidly. Unfortunately, a lack of strong regulations made it easy for

larger studios to take over and essentially run the industry for a few decades.

At the beginning of the film industry was a time period known as the Studio Era. This era

This business practice is not unheard of in the business world, however, in the film industry, the

use of this practice creates little to no competition. The major studios had the resources to own

and operate their production, distribution, and exhibition of their films while smaller studios and

independent studios struggled to compete. However, “the market control that resulted from

bigness as such was not typically considered an offense” (Jacobs, 1983), which left these smaller

studios struggling to profit while major competitors controlled most of the market.

A larger concern was block booking. Block booking was a practice that involved theaters

purchasing a group (or block) of films to show rather than purchasing them separately. If a

theater wanted to purchase a major motion picture, they were also required to purchase and play

a set of B films that accompanied the major film. This created an even larger divide between the

major studios and smaller or independent studios. With the ability to buy out a whole theater,

there was very little chance for independent productions to be screened to an audience.

Both of these practices got the attention of the Department of Justice and in 1948, a

lawsuit was filed against the five major studios for participating in anti-trust business practices.

The decision ultimately concluded that the studios could no longer practice block booking and

had to divorce from their theater ownerships in order to promote fair competition and a

non-monopolistic industry. The US. versus Paramount Pictures' decision became known as the

regards to how streaming services are beginning to create a monopolistic industry and the

potential to enter a modernized Studio Era.

Netflix has been an industry leader in at-home movie services for over 20 years. Founded

in 1997 as a movie rental company, its biggest competitor at the time was Blockbuster, which

refused to purchase Netflix despite the offer. Eventually, Netflix changed its service to include a

new method of movie renting: the subscription model. This model provided customers with the

ability to rent unlimited movies for a monthly subscription price. Blockbuster ultimately filed for

bankruptcy, leaving Netflix as the winner of the two rental companies. (Sim, 2016).

In 2007, Netflix switched from a physical movie rental service to an online movie

distributor. Works became even more available as customers could rent movies within minutes

due to how Netflix “[p]partnered with manufacturers of various consumer electronics products,

including video game consoles and Blu-ray Disc players, in order to enable its videos to be

streamed over an Internet connection to those devices” (Hosch, 2022). Eventually, Netflix

became a globally known service, no longer limited by physical mail; all movies could be

streamed through customers’ personal devices connected to the internet.

Waldfogel, 2018), which could become a problem for both Hollywood and independent

producers alike.

Independent film studios have historically struggled to compete against larger Hollywood

studios.Independent studios were one of the largest groups demanding an end to block booking

before the Paramount Decrees, as it denied them access to the most profitable parts of the

industry (Jacobs, 1983). There has been consistent favorability in Hollywood studios over

independent studios, especially in the distribution portion of the film industry (Gil, 2010) due to

their higher economic power to both produce higher budget films and own the three stages of the

film industry.

In an effort to promote more equal competition within the film industry, the Department

of Justice managed to ban block booking and end vertical integration with the Paramount

Decrees that major studios had taken advantage of. By doing so, the audience had more access to

independent and smaller studio productions than before, increasing the audience’s choices of

productions higher than blockbusters in early feedback (Zu Tang, 2014). Another benefit for

independent studios is that Netflix benefits from the less expensive licensing agreements for

independent films given they meet the preferences of the company’s subscribers.

Netflix has taken an interesting position related to independent productions. Through the

Sundance Film Festival, Netflix began acquiring the rights to multiple indie films that lead to its

fifth nomination for an Oscar award (Morrison, 2017). These acts of acquisition beg the question

of whether Netflix truly sees potential in independent productions or simply uses them for their

own gain (award nominations and clout). Nevertheless, when Netflix decided to submit their

own film to the Sundance festival, while the audience laughed at the Netflix logo playing on the

screen (Morrison, 2017), independent studios realized a new competitor stood before them. With

the budget and resources that Netflix has available, there becomes less chance for lower-budget

indie films to make their name heard. The Cannes Film Festival is an iconic opponent against

Netflix, arguing that unless its films are debuted in a theater for a certain amount of time, the

major studio cannot enter the competition, allowing space for independent productions to

compete without the threat of Netflix to take the glory.

major studios were originally able to contract with Netflix and have their films available for rent,

however, with Netflix changing into its own production studio, these Hollywood studios have

serious competition.

From the beginning, Netflix proved to be a threat to Hollywood studios. With Hollywood

making most of its money in the early 2000s through movie theater attendance and DVD

purchases, the sudden emergence of DVD rental companies proved to be detrimental to their

income. Companies like Netflix and Redbox took advantage of the First Sale Doctrine in an

effort to undermine the Hollywood studios and be able to rent their titles without proper

permission. The doctrine stated, “once a person buys a copyrighted item from the owner, the

seller no longer has the right to prevent the seller from reselling it, giving it away, or lending it

This potentially unethical business practice did eventually disappear when Netflix turned

toward digital content. Currently, according to the Netflix website, the company enters licensing

agreements for titles and must remove them from its site once the agreement has expired. The

site claims that when considering renewing a licensing agreement, areas to consider are whether

the rights are still available, how popular the title is, and the cost of renewing the license. If the

company decides that the renewal is not worth the extra costs, they will remove the title. This is

considerably different than when they were renting out DVDs to customers. Rather than

These licensing agreements not only limit Netflix and other streaming services to what

they are allowed to stream but also encourage studios and streaming companies to make

customers who are specifically seeking those shows or movies. Some production studios are

fearful of this tactic in that it may “[give] Netflix too much leverage in future negotiations''

(Auigar and Waldfogel, 2018).

Such contracts can already be seen occurring across streaming platforms. In 2011,

Pictures and Netflix entered an exclusive agreement for five years once the pictures leave

theaters, according to the New York Times. While this limits Sony Pictures’ ability to sell off the

rights to their films to other streaming services, Netflix now has exclusive rights to Sony Picture

films, making their content more diverse and sought after by subscribers.

Other streaming services are following suit. When Disney Plus was established, Disney

pulled all of its content from its competition to keep exclusive rights to its content. Amazon

Insider. Many other studios are also using the concept of exclusive content to bring in new

subscribers or interested customers to their service. (Clement, et al, 2020).

content, Hollywood studios are taking a hit. By signing these exclusivity agreements, Hollywood

studios are forcibly limiting themselves to selling their content to one service. Cons of this type

of contracting include limitations in competitive marketing as well as the potential to misvalue

For nearly ten years, Netflix has stood as its own production studio with consistent

movies and TV shows known as Netflix Originals. The first Netflix Original was the show

Century. Edited by Kevin McDonald and Daniel Smith-Rowsey. 185-201.

http://www.vesco-art.com/artsandletters/scms/faculty/sim/pdf/sim.pdf.

Smith, Rodger. 2011. “The Virtuous Cycle.” Film Content Vol. 47, No. 3 (May/June): 22-23.

https://www.jstor.org/stable/43459664

Sullivan, Ryan. 2010. “The Rental Epidemic of The Twenty-First Century: A Look at How

Netflix and Redbox Are Damaging The Hollywood Film Industry and How To Stop It.”

Loyola Law School Vol. 30, No. 2 (March): 327-354.